The Hindu Business Line : Whither simplification?

Through the Income-Tax (Seventh Amendment) Rules, 2006, issued on July 24, Rule 12 of the I-T Rules, 1962 has been amended to substitute new Forms 1, 2 and 3 in the place of existing ones bearing the same numbers. Generally, Form 1 is for companies, Form 2 for non-corporate assessees having income from business and profession, and Form 3 for non-corporate assessees not having income from business or profession.

Why the changes?

No reasons for the changes made have been indicated. However, on a reading of the Notification, it appears that one reason could be to incorporate information on fringe benefits. And the other, apparently, is to make the returns electronically acceptable. In the cases of companies, e-filing of returns has already been made mandatory. The same direction is likely to be issued for other returns too.

The new return forms have become lengthy, voluminous and run into several pages. The main columns have been sub-divided into various sub-columns. Taxpayers are now required to compute the taxable income, as also the tax payable or refundable. Then, there are instructions aplenty for filling up the forms.

Conceptually, there can be no objection in soliciting varied information from the taxpayers through long-drawn return forms with numerous schedules. The issue to be considered in this regard is whether it should be done keeping in view: i) the costs involved; ii) the nature of taxpayers in the country (excluding corporations, which constitute only around 1 per cent of the total taxpayers; iii) the fact that a large number of taxpayers are not computer literate and will have difficulty e-filing returns; and iv) the fact that businessmen having turnover exceeding Rs 40 lakh and professionals having receipts exceeding Rs 10 lakh are required to get their accounts compulsorily audited and that the auditors are required to furnish elaborate audit reports has been further elaborated to get more details through the 9th Amendment to the I-T Rules (notified after the notification of the three return forms).

Form 3CD

Information required in Form 3CD is more extensive in some respects than in the new return forms. For example, new return Form 1 solicits details about amount admissible under Sections 33AB, 33ABA, 33AC, 35, 35ABB, 35AC, 35CCA, 35CCB, 35D and 35E (10 sections), while in Form 3CD (after amendment) details about 12 sections (including 35DD and 35DDA) have been asked for.

Similarly, a new Annexure II has been added to Form 3CD, which is on the same lines as Schedule 17 to the new return Forms 1 and 2 and Schedule 2 to return Form 3. The issue then is: What is intended to be achieved by duplicating the information and making the taxpayers do an identical exercise twice, involving higher costs in terms of time and money? Another issue concerning Form 3CD is: How does the I-T Department propose to use the information in the form, when in all the three returns and the instructions it has been mentioned that no documents, including tax audit reports, are to be enclosed with the returns. Audit reports are obtained at a high cost and if taxpayers are required to furnish similar information in returns, as is required to be given in the tax audit report, then why have another exercise of a similar nature in the form of tax audit reports.

FBT details

The next issue needing attention is: Why merge FBT details in Forms 1 and 2? Why cannot the returns for FBT be filed in Form 3B (applicable for assessment year 2006-07) separately to ensure simplicity and ease of handling. Many assessees may not be liable to FBT. Then why waste space in the forms? To ensure compliance, the two returns can be filed separately but simultaneously.

For ensuring voluntary tax compliance, norms such as simplicity, certainty, helpful attitude and tendency not to pass on too much burden on the taxpayers in the matter of discharge of their tax obligations have to be adhered to. The new return forms can, by no standards, be considered simple. Uncertainty prevails in regard to the use of Form 3CD, despite taxpayers spending a lot of time with the tax auditor and incurring huge costs.

There is also uncertainty about Form 2F. The UPA Chairperson and PAC find some of the columns in this form unreasonable from the taxpayers' angle, but the Finance Ministry seems to think otherwise. Such varying positions need to be reconciled to end the uncertainty. There are various other such issues needing urgent sorting out, if a cohesive, taxpayer friendly, simple and workable tax code for the country is to be ensured. But it is disquieting to find that this is not happening.

(The author is a former Chairman of CBDT.)